4 Italian High-Yield Stocks To Consider

Includes: E, ENLAY, SNMRY, TI
by: Humble Value Miner

The recent market turmoil attracted high interest in Italy. We know almost everything about the big Italian sovereign debt and about former premier Berlusconi's opinionable sex scandals, and we have read that the estimates for the Italian economy are for slow, anemic growth.

Deep pessimism and panic selling overwhelmed the Italian stock market for months; politicians not exactly known for their speed and Stakanovism are rushing to approve austerity measures, and the government chaired by one of the most controversial politicians of the developed world abdicated. At this point, we could suppose that the weak hands have sold, so investigating is wise and could certainly pay.

Of course a bit more pain could be in line until all the dust settles, but my personal opinion is that the long term investor can already find some good deals, and some are too good to last for long.

The first company I would like to mention is Eni S.p.A. (NYSE:E); market cap 80B. This oil major in the 60s was dubbed in Italy as "the State inside the State": Eni and its iconic president Enrico Mattei directed Italian politics from backstage, and several Italian laws and rules were "inspired" by the corporation. Nowadays things are changed (or maybe they are just less evident...), but the company continues to "print money" with well diversified oil and natural gas fields. The restarted or soon-to-be Libyan activities are just one of the several productive interests and partnerships that the company owns almost anywhere in the world.

The company is well run and its very high dividend is stable and well covered. As you may know, even in the deep of the Great Depression oil consumption declined by just 1%. Also, Europeans don't like to be cold in winter as well as too hot in the summer, and if you have a chance to drive in Italy you will see that $9/gallon for gasoline (most are taxes) is not sufficient to limit car traffic, even with the TV that talks everyday about crisis. The Chinese deals add further security: the company quietly and steadily expands and diversifies both input and output.

Risk: oil price, political instabilities in some oil countries. Reward: high dividend; dominant player

Another big Italian company traded on the NYSE is Telecom Italia S.p.A. (NYSE:TI); market cap 24B;. This former telecom monopoly has great potential but very poor execution. Thanks to generous laws and friends of friends, telecoms have been liberalized in Italy only very recently, and TI continues to own the "last mile" for 95% or so of land lines. The competitors must pay TI to use the lines, and TI exploited several times its position in unpleasant ways. It was fined (with ridiculously low fines) for charging competitors more than its own end-customers, killing de facto any chance of competition. Despite this, it was able to pile up a mountain of debt that is still there, so I am highly skeptical.

The company also has an important wireless/cell business - in this field its main competitor in Italy is Vodafone (NASDAQ:VOD); additionally it controls TIM Participacoes in Brazil and Telecom Argentina (NYSE:TEO).

Risk: poor execution, debt. Reward: dominant player; good dividend; Brazil business

ENEL S.p.A. (OTCPK:ENLAY); market cap 40B; (notice: as several other EU majors, it trades on the Pink Sheets to avoid too much papers). ENEL is the former energy monopoly: a few years ago, almost all Italians had their refrigerators, ovens, light bulbs and so on powered by the electricity generated by ENEL. Actually, this is still true for most of us, and the computer where I am typing is currently alive thanks to them. This is another company with a stable and high dividend, that delivers a good that is always in need.

Risk: very high oil or natural gas prices. Reward: good dividend; stable utility; dominant

Snam Rete Gas (OTCPK:SNMRY); market cap 16B; was a section of Eni and is still owned by Eni at 52%. Snam Rete Gas manages gas. It is the leader in the regulated natural gas sector in Italy and a major player in Europe in terms of its regulatory asset base (RAB). It transports and dispatches natural gas, re-gasifies liquefied natural gas (LNG) and distributes and stores natural gas. It owns more than 80000km (50000 miles) of pipelines. This provides a stable high dividend.

Risk: gas prices. Reward: good dividend; stable pipeline income; dominant

You may notice that the currency exchange risk is not mentioned above. This risk may pertain to TI (but its Brazil and Argentina exposure could balance Euro risk), while the others are basically energy players, thus connected with oil/US dollar.

Also, I did not quote precise dividends: this is because European companies tend to not deliver a constant payout; they also pay annually or semi-annually. As an indication, at the current prices these companies usually manage to be within 5%..10%.

Disclosure: I am long E, OTCPK:ENLAY, OTCPK:SNMRY, TEO, VOD.